Default Prevention

1
Session 54

• Default Prevention
• 2008
• Mark Walsh
• Angelita Dozier

2
Topics for today

• 2005 Official CDRs
• IDCs and eCDR Appeals
• Statewide Default Projects
• Defaulter Characteristics
• Early, in-school, and late stage strategies
• Default Prevention Grants

3
Topics for today (Cont)

• Guaranty Agencies and Lenders
• Regulatory Requirement
• Cohort Default Rate Release Dates
• 2005 Official Cohort Default Rates Fast Facts
• Data Correction

4
Default Prevention and Management

• Three team structure
• CDR Operations
• CDR Challenges, Adjustments, and Appeals
• Default Prevention Outreach

5
National Student Loan Default Rates
6
Schools Subject to Sanctions
1993 1994 1995 1996 1997
1998 1999 2000 2001 2002 2003
2004 2005 2006 2007
Number of Schools
No Sanctions
The school numbers are pre-appeal and include
only schools impacted by the three years of 25
or greater sanction. A school can be on extended
sanction and is therefore reflected in multiple
year counts. Since 1991, 1,161 unique schools
were sanctioned under the three years of 25 or
greater sanction.
7
National CDR by Sector
2003
2004
2005
8
The highest CDRs

• 9.6 Puerto Rico
• 7.4 Alaska
• 7.2 Nevada
• 7.0 Arizona
• 6.9 Georgia
• 6.9 West Virginia
• 6.8 Arkansas
• 6.0 Kentucky

9
2005 Official CDR Fast Facts

• The 4.6 CDR represents a 9.8 decrease from the
  FY 2004 rate of 5.1
• Borrowers entering repayment increased 24 over
  FY 2004
• Defaulted borrowers increased 12 over FY 2004

10
Incorrect Data Challenge

• Review consists of a careful examination by the
  school of their LRDR, school, and outside source
  records
• Opportunity for schools to work with data
  managers (guarantors) to correct errors

11
New eCDR Appeal Process

• e-CDR Appeals, a new vehicle for
• schools to electronically submit
• challenges, adjustments, and
• appeals, will be a single web-based
• user interface for schools, for ED,
• and for data managers.

12
What are the benefits?

• Eliminates the mailing and tracking of hard copy
  documents
• Minimizes the risk for disclosure of personally
  identifiable info
• Reduces the chances of late or incomplete
  submissions

13
When is the first release?

• February 2008
• Schools may challenge 2006 draft cohort default
  rates via Incorrect Data Challenges
• Features automatic routing to the correct Data
  Manager

14
When is the second release?

• September 2008
• Schools may challenge 2006 official cohort
  default rates via Uncorrected Data Adjustments
  and New Data Adjustments

15
Default Prevention Activities

• State projects are selected according to
• Cohort Default Rate
• Volume of dollars in default
• Opportunities available to get our message out

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Statewide Default Prevention Projects Underway

• 2005 Nevada and Puerto Rico
• 2006 Ohio, Michigan, Georgia, Florida,
  and Arkansas
• 2007 California and New York

17
2008 Message

• Defaulter characteristics
• Student success and retention
• Financial literacy
• Timely/accurate NSLDS reporting
• Managing delinquency LSDA
• Dollars in default
• Private Loans

18
Defaulter Characteristics

• 89 did not receive their full 6 month grace
  period due to late enrollment notification
  (sample)
• 54 had bad telephone numbers (actual population)

Source January 2007 Analysis of Federal Direct
Loan Portfolio
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Defaulter Characteristics

• 94 were not successfully contacted by phone
  during the 360-day collection effort leading up
  to default (sample)
• 71 withdrew without completing (actual
  population)

Source January 2007 Analysis of Federal Direct
Loan Portfolio
20
Early Stages of Enrollment

• Emphasis on Student Success
• Students often receive up to 3 hours credit for
  workshops
• Orientation sessions and events to integrate
  students into school is mandatory at some
  colleges.

21
Late Registration

• Has student missed classes?
• Does a late start indicate poor or no
  preparation?
• Is this student at an increased risk of default?

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Late Registration
Sun
Mon
Tue
Wed
Thu
Fri
Sat
First Day of Classes
22
23
25
24
August
26
27
28
29
30
31
Labor Day
2
3
4
5
6
8
7
4
Sun Mon Tues Wed Thurs Fri
Sat
September
9
Last Day to Register
11
12
13
15
14
Student Misses 7 Classes
23
In-School Late Enrollment

• Schools utilize system-generated reports from
  student records systems, weekly or bi-weekly, to
  identify withdrawals at the earliest stage
  possible.

24
Distance Learning and Default

• FSA does not routinely collect data on default in
  distance education programs
• Anecdotal info increased risk
• What is your experience?
• Are there best practices?
• How can FSA help?
• Opportunities for collaboration?

25
Managing Delinquencies

• Late Stage Delinquency Assistance
• For both DL and FFEL schools
• Why can schools be effective?
• How does it work?
• Compliments guaranty agency late stage efforts

26
Managing Delinquencies

• Increased due diligence on high volume borrowers
• Pre-repayment counseling
• Establish relationship
• Verify correct repayment status and check monthly
  payment
• Update all contact information

27
Default Prevention Grants

• Encourages schools to engage in default
  prevention activities
• Often resources (staff time, ) are obstacles to
  default prevention work
• Schools are likely to maintain activities beyond
  the life of the grant program

28
Default Prevention Grants

• Schools submit proposals
• Can fund position dedicated to default prevention
• Conduct analysis of defaulting borrowers
• Identify and share best practices identified by
  schools

29
Financial Partners Services Default Coordination
Team

• Cohort Default Rates for Guaranty Agencies and
  Lenders

30
Regulatory Requirement

• Under Section 430(e) of the Higher Education Act
  of 1965, as amended(HEA), the Department of
  Education is required to publish the cohort
  default rates of lenders, guaranty agencies and
  schools participating as a lender in the FFEL
  Program.

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Cohort Default Rates Release Dates

• Rates are released twice a year
• DRAFT RATES
• Guaranty Agencies Cohort mailed in February
• Lenders - obtained from NSLDS website at
  www.nsldsfap.ed.gov

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Cohort Default Rates Release Dates

• BENEFITS OF DRAFT RATES
• Guaranty agencies and lenders may review data for
  accuracy
• Identify any anomalies and data conflicts
• Opportunity to make necessary data correction
  prior to calculation of official rates

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Cohort Default Rates Release Dates (Cont)

• OFFICIAL RATES
• Guaranty Agency and Lender rates released in
  September

34
2005 Official CDR Fast Facts

• Highest guaranty agency rate was 10.3 (5.0
  increase from FY 04 rate)
• Lowest guaranty agency rate was 1.5 (same rate
  as FY 04)
• Five guaranty agencies had a 1.0 or greater
  increase

35
2005 Official CDR Fast Facts (Cont)

• Eight guaranty agencies had a 1.0 or greater
  decrease

36
Data Correction

• Any guaranty agency or lender that receives an
  official cohort default rate is provided the
  opportunity to correct its most recent official
  cohort default rate.

37
Data Correction (Cont)

• Reason for Requesting a Data Correction? 
• Data Conflicts occurs when a Guaranty Agency is
  not able to report on a loan because of a
  data/identifier conflict with another loan
  already reported to (NSLDS).

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Data Correction (Cont)

• Where to submit Data Corrections?
• Guaranty agencies must submit incorrect data
  request to the Department for corrections.
• Lenders must submit incorrect data request to the
  guaranty agency for corrections.

39
Contact Information

• We appreciate your feedback and comments. We can
  be reached at
• Phone[phone]
• Emailmark.walsh_at_ed.gov
• Fax[phone]

40
Contact Information

• We appreciate your feedback and comments. We can
  be reached at
• Phone Default Coordination Team
• 202-377-3053
• Fax [phone]